Risk Management-HR Issues

-Mr. A.C Varma

Chief General Manager(HR)-SBI
Why Risk Management?
 Horizontal expansion of the financial markets, entry
of private and foreign players
 Deregulation across the globe in financial markets and
stiff competition have led the banks to multiply their
activities, types and number of products have exposed
the banks to more uncertainties and more risks.
 Information Technology has on one hand facilitated
faster movement and exchange of data and
information; it has also increased number and types for
risk.
Indian banking sector
 Banks in India have, therefore, started paying
attention to the potential risks and to evolve
mechanisms and systems to control and manage
them in line with the global standards and
procedures.
 Unguarded situations and complacency lead to
huge losses. A number of banks have been
exposed to substantial financial losses in India and
abroad. Analysis of the reasons reveal weak risk
management and HR undercurrents.
What is Risk management?
“Comprehensive process adopted by an
organization that seeks to minimize the
adverse effects it is exposed to due to
various factors -- economic, political or
environmental, some of them inherent to the
business, others unforeseen and
unexpected.”
Types of risks
 Credit Risk
 Environmental and financial risk which, inter alia, arises
from changes in the macroeconomic environment, interest
rate fluctuations and market exposures.
 Operations risk, covering other aspects of day-to-day
business, including personnel management, industrial
relations and human resources development.
 Strategic risks, which are associated with the way an
institution is managed, including the strategy for
marketing, meeting new competition, improving customer
satisfaction and product development
BASEL-II
 Basel II is based on three pillars:
 Minimum capital requirements,
 Supervisory review, and
 Market discipline- to bring stability to the financial system
 BASEL II also aims at:
 Ensuring that capital allocation is risk sensitive.
 Separating operational risk from credit risk, and
quantifying both
 Attempting to converge economic and regulatory capital.
Issues faced by banks for BASEL-
II
 Aligning and upgrading data and existing
IT systems infrastructure for completeness,
consistency and integrity across the
organisation.
 Governance
 Need to bring in a risk culture across the
whole organisation
Role Of HR
Illustrated by Live Case in SBI
HR Related Risks
 Integrity
 Skills- confidence level-difficult to
adjust-stress-change management
 Recruitment & Retention-cost
 Obsolescence and reskilling
 Industrial Relations-redeployment-
impacting operations
 Ageing profile
Some more issues
 ATMs and internet banking-potential dangers
 SBI has in a month 4.30 crores transactions involving
cash withdrawal of Rs 5,290 crores.
 Single pc had few lac accounts; in core banking it will
have access to 5 crore accounts in thousands of
branches- imagine the opportunity to fraudsters
 e-banking could lead to frauds on bigger scale
 The value of frauds in will not be in thousands
 Crime- $800 bio to $1.6 trio are laundered annually-
half through banks- 47% in US -30% in Asia- Pacific
 Facts of the Case
 Central Office Inspector suspicious of see huge credits to
NPA accounts by the way of standing instructions
 Number of fake entries
 Assumed role of system administrator despite presence of
one.
 Manual entries in otherwise system generated accounts
 Before this, the perpetrator had worked in systems
department of the bank.
Human Resource Management Perspective
 Supervising Staff taking up additional roles other than laid
down instruction.
 The erring employees behaviour and actions in the
workplace was glaringly obvious, yet people ignored it for
months and was posted as a Branch Manager
 People worked in their own small drawn out territory. No
team work.
 Lack of focus on the vital regulating and back-office
control roles that were seen as far less glamorous.
 Complacency despite all roles being assumed by one
person no one raised an eyebrow
 Controls exercised in manual system still applicable
Hence What has to be done..
 Putting in place forums where employees can express their views & suggestions about
the organisation.
 Like open houses with the controllers at periodic intervals
 Frequent team meetings
 Team getaways and get-togethers
 Change in mindset of people. Encouraging people to embrace technology and keep
abreast of changes in the financial market.. (age ?)
 Awareness amongst staff of pitfalls
 Employment risk audits should be done extensively while recruiting staff. This would
include
 Thorough background check
 Employee handbooks
 Laying down clear rules for leave, compensation etc
Contd.
 Ensure employees are properly trained to do their jobs and have clear, defined roles. For
this there has to be clear training need analysis, training delivery methods, post training
evaluation and on job evaluation
 Identify methods of stress reduction. This could be through various work-life balance
techniques like
 Rooms for taking rest breaks, gymnasium
 The chairs and work areas have to be aesthetically developed.
 Clear job definition and allocation of roles just clarifies what is expected from a person.
 Periodic job rotations and transfers in jobs that can lead to frauds due to extensive
knowledge of systems especially in institutions like banks etc.
 Periodic HR audits to measure employee satisfaction, motivation etc. Suggestion
schemes would help us know the pulse of the organization.
 Periodic Internal audits of systems and procedures.
 Career and Succession planning based on experience and performance. This should
include performance tracking by supervisor.
 Staff Welfare does not end at provision of good canteens, aesthetic surroundings.
Encouraging people to have a work life balance, flexible working hours. Supporting
employees in difficult times like tragedies or participating on happy occasions.
Lessons from Nick Leeson
 Do not lose sight of your work force
 Thrust of everything was: how much money are we going to
make? Organisations need to focus on staff welfare
 Stress; psychological aspect of the way stress affected him; fear
of failure; if you ask for help your status is diminished-I was
failing
 Need to have control and achieve success blinded him
 I was in mid twenties-age was not commensurate with
responsibilities
 In risk management and compliance you need strong people
 No complacency
 Key decision makers did not understand business
 There will be always rogues who will bend rules and take risks
 Fine line between employees being stretched and stressed
What Organizations like IBFS Can
do
 Train people for meeting the challenges of
their forthcoming jobs.
 The syllabus should be designed so that it
develops necessary Knowledge, Skills and
Attitudes
 Research on the loop holes of the new
policies and methods of countering it
“A stitch in time saves
nine”
Thank You!